What is Obama Trying to Achieve with Thursday’s Shocking Oil Announcement?

I’m surprised by the move by the President and the IEA. What’s this about?

Is it about the price of oil?

Before the announcement WTI was sitting around 95. That’s a solid $20 lower than it’s peak eight weeks ago. Why would Obama & IEA act today? A very big price adjustment has already been made. If the circumstances were different and the price of WTI was through $120 I might have agreed to this. But why make a splashy show now when no show is required?

There is more to this than meets the eye is my conclusion.

Is this really about Libyan production?

On a global basis I don’t think this sells. Japan’s slowdown offsets most of the Libya loss. Anyway, the Libya story is two months old. Why the action so late in this game?

Is it about punishing speculators?

Obama promised to do this. I thought he delivered on his promise when the CFTC started raising margin requirements willy nilly. But direct intervention in the crude market? That is raising the ante by a great deal of chips.

The driving force in the drop in crude over the past month or so has being the growing realization that the global economy his hitting multiple speed bumps.

Not to be boring, but China, Japan, Europe and the USA are all slowing down. What “specs” out there were swimming against that tide? Not many, in my opinion. So if one of the objectives was to beat on the players I think this moved missed by 90 days. IMHO this silliness is setting up a great buying opportunity. So the specs are going to cash in when this washes out.

Is it about teaching a lesson to OPEC?

I am concerned that this is a factor. The US wanted OPEC to up production. That didn’t happen. So the bad boys who produce oil just got a shot across the bow.

Watch if this angle on the story gets “play”. It would piss off those bad boys and they will retaliate. Does O really think he can take on the world oil market? He can’t beat the Taliban. OPEC will crush him.

Is it about stimulating the US economy?

This seems to be a significant part of the equation. But just think this through. The rule is that for every $1 drop in crude we see a 2-cent drop at the pump.

Say for the sake of it that this drama will result in a $10 drop in crude. So the pump goes down by a lousy 20 cents. Do the deep thinkers really believe that if gas gets twenty cents cheaper for a month or two that they have really bought themselves anything? Are things so desperate that steps not taken before are justified? That’s a conclusion the stock market was pondering today. The bond market ran up the same flag.

Is it about stimulating China or Europe?

That can’t possibly be the case. The 60mm brls represents just 16 hours of global consumption. If it’s stretched out over 30 days it comes to an insignificant 2% of daily demand. That is a super tankers worth. There are hundreds of ships at sea right now with that much crude on them. This has nothing to do with influencing global supply.

Is this a desperate move by the administration to show leadership?

I looked at the WH home page and did not see this important development highlighted. Maybe the big O is trying to distance himself on this one. I’m convinced this will backfire. Give it two months. Tops.

Are supply and demand conditions such that this extraordinary move is justified?

Beyond the already discussed Libya non event I’m not aware of something that is blowing up in one of the big producers. Does Obama have some insight on this? Does he know something I don’t about Iraq, Iran, Venezuela or Nigeria? Stay tuned. If something blows in one of these over the next few weeks you will see how things are orchestrated.

Is this a big deal?

On the numbers; no it is not. But it is one of those sharp right hand turns that come up from time to time. Because it is so unusual it bears noting. We live in an interventionist world. Every aspect of the global economy is trying to be manipulated by the “Deciders”. I have never seen a precedent like today. In that sense, I consider this to be a very big deal.

Are we going to see more of this type of market intervention?

I’m sorry to say that we might. What’s been offered up is a drop in the bucket. So round two of this foolishness is a distinct possibility.

Did Bernanke know this was coming when he spoke with great confidence that oil prices would soon retreat?

This took months to put together. Bernanke knew it was coming. We live in a manipulated world.

My thoughts:

-This was a bonehead move that was put together by Euro technocrats. They dreamt this up two months ago. It was a dumb plan to offset the consequences of Libya. Because 30 countries are involved it took sixty days to ink an agreement.The timing today is a mistake.

-Mr. Khadafy is pissing many folks off at this point. He should be gone by now. Look for Mr. K to get a cruise missile up his arse any day now.

The principal rationale for this market intervention is Libya. Take that out of the equation and there is no justification left for continued meddling in global markets.

-This one trick pony is going to knock 15 cents off the price of gas for a month or so. There will be a disruption in market liquidity and inventory levels. This will result in a big spike in crude sometime this fall.

-OPEC will respond. “We” will pay a price for this.

-There will be technical problems at the SPR. They will not be able to deliver 2mm barrels a day of light sweet crude.

Related posts

I want to know you in the US government, top to bottom, got very rich shorting oil in the 5 or so days before the announcement of the IEA!!

Anonymous on June 25 2011 said:

Who got rich in this deal?

Anonymous on June 26 2011 said:

Bruce, I am a Democrat and also from Chicago. Better Obama than John McCain and Sarah. But the Prez is hopeless. He's the perfect example of the very smart guy who can't bring his dumb side under control. Something like your's truly a few centuries ago.You've written a good article, and it deserves a lot of comment. Unfortunately I can't help you because the sun is shining here in Sweden, and my tennis comes first. But I can understand somebody's reasoning on oil: if the price of oil is now close to $90/b, a fall to e.g. 85 might get the economyinto gear. If this is true, then taking some oil from the strategic reserve makes a lot of sense, though for reasons I won't explain.

Anonymous on June 26 2011 said:

Fred, Much better McCain/Palin than this fascist Obama. If you doubt he is a fascist, open your dictionary.O is obviously trying to bankrupt our country and do favors for his friends in the unions, banks, corporations,etc.who funded and will fund his campaigns.O has used the oil reserve to try to revive his faltering ratings in the polls.

Anonymous on June 26 2011 said:

Last time the reserves were messed with most of the oil got sold overseas, as I recall. If your assertion is true that this is a Euro idea, then I'm assuming that that one tanker of oil this represents will be on its way across the pond shortly.

Anonymous on June 27 2011 said:

L, nobody in their right mind could believe that Obama is worse than McCain and Sarah, together or separately, and worst of all George W Bush, who got us into this mess. George Bush and the American voters, who chose him instead of John Kerry. If Kerry had been elected, you wouldn't know how to spell Obama's name.The truth is that Obama means well, but he is just completely and totally incompetent. I couldn't stand Bill Clinton, especially when he got into philosopy, but I think that he knew waht he was doing.Anyway, maybe we will have some luck the next time around. Maybe.

Anonymous on June 27 2011 said:

Just check it out O or his close associates investment records in Oil market in the past two months, we will surely get an answer WHY this stupid decision is taken.

Anonymous on June 28 2011 said:

By the way, I tend to believe a lot of what Dr Bernanke says, but definitely nothing about oil.Some time ago he said that the price of oil would fall because the price of 3 year oil futures was much lower than the price of current oil at that time. Doesn't he know that futures with that maturity have no meaning at all?

Anonymous on June 28 2011 said:

6/27 to 7/2/11 is a hot spot window in more anticipated geological & climatic disruption .....already nuclear facilities in the US are at risk from floods, Minot airbase and it's nuclear warheads - sandbagged, Los Alamos on fire..........this release could be about something we don't know about i.e. to make sure the nation has enough fuel to make up for any short term shortages or potential ecological dishevelment. Maybe if YOU greedy people that have speculated on our World future with this black death called OIL - and can only see things in terms of COMMODITIES,CASH & MONEY - well no worries - 1 chernobyl = 1 miilion dead - FukUshima = 50,000 chernobyls - do the math .....go back to your raping of Libya etc etc because plutoniums loving embrace wants to seriously sodomise you with a toilet brush - the way you have every living thing on this Earth and that includes your own children ........so the Obambi, more than likely knows something you don't.......a hasta la vista baby!